Can anyone tell me what the correlation is between oil prices dropping

[cali]

and the markets falling? Over the last couple of weeks every time the Dow has fallen, oil prices have dropped. This morning oil prices were down to slightly below $90 a barrel and Dow futures were down nearly $300 last time I checked.

Can anyone explain this to me?

[kikiek]

1. I believe it is because they are anticipating decrease in demand due to economic slowdown.

[Raven]

2. Well Cali, this may be the blind leading the blind but I think the

speculators are sitting on the sidelines and figuring that none of us will have any money left for oil so demand will decrease. :-)

[happyslug]

10. I think the Speculators are betting on oil dropping even more.

People forget Speculators bet both up and down, earlier in the year speculators kept betting that the price of oil will go up and up, and won most of the time. Then the price peaked out and started to drop. At that point the speculators started to short the market, and have made even more money by shorting the market as the price drop. Yes speculation works both ways and right now it is driving oil prices DOWN. Just like the price peaked and the drop, I expect the price to bottom out and then climb. One of the side affect of a shortage of anything is rapid price ups and downs, The reason for this is that you do NOT need to hold extra items in inventory to keep the price up, the shortage will do it for you. As the price drop you do NOT have to sell that inventory as a lost, for you do not have any. Thus it is easy to manipulate the market. The real test is November when the Northern heating season begins. People may be able to NOT go on vacations during the summer do to high gasoline prices, but can they NOT buy oil for hear when cold weather hits? I have my doubts, but we will not see it for about another 1-2 months, when temperatures start to hit 32 Degree Fahrenheit

[ThomWV]

3. When there is less money it drives down the price things

You can not sell $100 oil to a man who only has $75 and if the thing you are interested in selling cost you nothing the $75 still looks good.

[dipsydoodle]

4. I'd say the fall in the markets

is driving down the price of oil due to implied reduced demand for oil as the world economy slows. There are many stories in the naked city and that was one of them - there are in truth many reasons why the two interact.

[Robbien]

5. Hedge funds are unwinding billions of dollars of their positions

Thus the price is tanking. Some are saying that at the time the unwinding is finished the price will settle back down to about fifty-sixty.

[depakid]

6. The correlation is with anticipated demand

as the nations of the world find their economies slowing down or entering recessions, demand is destroyed for all sorts of goods and services- which in turn affects commodities like oil.

The same recessionary concerns affect the stock markets, which is one reason why the Asian markets plummeted- less demand for the products they export, as US consumers cut back on spending money.

<on edit> it also doesn't hurt that the US dollar has been strenthening considerably for the past 2 months.

[dipsydoodle]

12. US dollar has been strenthening

That also reduces the attractiveness of your goods for export. Not that you seem to make that much these days - no sarcasm intended.

[depakid]

14. Caterpillar was doing quite well this year

exporting construction and mining equipment, despite higher steel costs- and yes, the weak dollar didn't hurt.

Even so, they've gotten caught in the credit crunch, which illustrates how it can affect even the healthiest companies with seemingly little exposure to the toxic assets that are at the heart of this mess.

See: Caterpillar bond sale illustrates credit crunch

http://www.reuters.com/article/marketsNews/idUSN2532149120080926

(an excellent read for people who want to know what this situation is all about and why stabilizing the credit markets is so important to Main Street)

[Hannah Bell]

7. people are pulling their money out of hedge funds & such. the funds were invested in

commodities, driving prices. the money leaves, the prices drop.

bubble.


so funny - a couple of months ago people were screaming about peak oil, the price never coming down, skyrocketing demand in china & india - now the price goes down, it's because there's no demand.

fi-nan-cial spec-u-la-tion.

[davekriss]

8. Demand destruction exacerbated by steep recession (nt)

[cali]

9. Thanks everyone for the explanations

the reduced demand explanation makes sense.

[baldguy]

11. The oil prices are dropping because there's an election coming

and John McCain is behind in the polls.

[dipsydoodle]

13. I think you credit the USA

with far more than they deserve with respect to the forthcoming elections. Completely fucking the worlds financial systems is a different matter.

[baldguy]

15. Not the USA, the multinational oil conglomerates.

They want a corporate stooge like Bush in the White House, and that's John McCain.

[Indenturedebtor]

16. Here's another correlation for you - Enron loophole

The Enron loophole is in the same vein as the other sorts of deregulation that led to our financial collapse. There are certain fundamentals of our economy like energy that shouldn't be subject to speculation.

Enron loophole
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The "Enron loophole" exempts most over-the-counter energy trades and trading on electronic energy commodity markets from government regulation.<1> The "loophole" is so-called as it was drafted by Enron Corporation lobbyists working with U.S. Senator Phil Gramm to create a deregulated market for their experimental "Enron On-line" initiative<2>.

The "loophole" was enacted in sections (h)(3) and (g) of the Commodity Exchange Act, 7 U.S.C. as a result of the Commodity Futures Modernization Act of 2000, signed by U.S. president Bill Clinton on December 21, 2000.<1> It allowed for the creation, for U.S. exchanges, of a new kind of derivative security, the single-stock future, which had been prohibited since 1982 under the Shad-Johnson Accord, a jurisdictional pact between John S.R. Shad, then chairman of the U.S. Securities and Exchange Commission, and Phil Johnson, then chairman of the Commodity Futures Trading Commission.

On June 22, 2008, U.S. Senator Barack Obama proposed the repeal of the "Enron loophole" as a means to curb speculation on skyrocketing oil prices.<3[br />

http://en.wikipedia.org/wiki/Enron_loophole